Sterling surges on Johnson’s election landslide
The pound has risen sharply over the past month as currency traders in the City of London bet that an election victory for Boris Johnson’s Conservatives would lift some of the intense political uncertainty facing Britain. Sterling jumped by more than two cents against the US dollar and the euro after exit polls indicated a Tory majority. However, the pound gave up its post-election gains after the prime minister said that he would enshrine into law the end of the Brexit transition in December 2020, raising the prospect of Britain leaving the EU and reverting to World Trade Organization rules – a development that economists consider would be damaging for the economy. Still, over the course of the past month the pound has risen by about a cent against the dollar. It is still down by more than 12% on its pre-Brexit vote position.
Stock markets rally on Brexit hopes and US-China trade deal
Stock markets around the world have surged over the past month amid mounting hopes of a resolution in the US-China trade deal, a standoff that has weighed on the world economy. Against the backdrop of easing tensions, the FTSE 100 has risen by more than 300 points in the past month and stands at about 7,600. Shares in major British companies, including banks, housebuilders and utility firms that faced the prospect of nationalisation under Labour, also rallied strongly after Johnson’s election victory.
Worse than forecast
Inflation stays low despite rising cost of chocolate
UK inflation remained at the lowest level in three years in November despite rising prices for goods including chocolate, concert tickets and holidays. In a positive development for hard-pressed households in the run-up to Christmas, the Office for National Statistics said the consumer price index held steady at 1.5% in November – the same level as recorded in October. City economists had forecast inflation would fall slightly to 1.4%. The inflation reading below the Bank of England’s 2% target could help to encourage the central bank to cut interest rates, as the economy falters against a backdrop of continued Brexit uncertainty.
Worse than forecast
Brexit stockpiling boosts imports
British companies rushing to stockpile imports in the buildup to the previous October Brexit deadline caused Britain’s trade deficit to widen over the month. The shortfall between the value of goods and services sold abroad and imported to the UK increased by about £3bn on the previous month to reach £14.5bn in October, amid a surge in imports before the Halloween deadline. The trade in goods deficit, excluding services, rose from £1.9bn in September to £5.2bn, above the consensus estimate of City economists for an increase to £3bn. Analysts said that underlying demand for UK exports remained depressed by the uncertainty over Brexit, with some overseas companies shunning the UK, given the lack of clarity over the future trading relationship with the EU.
Better than forecast
Business activity muted ahead of election
Heightened political uncertainty in the run-up to the general election depressed business activity levels in November, according to closely watched surveys suggesting that economic growth stalled in the final months of 2019. The latest snapshot from IHS Markit and the Chartered Institute of Procurement and Supply showed the UK’s dominant service sector, which accounts for about 80% of the economy, failed to grow for the third month in a row. The all-sector purchasing managers’ index, which takes into account manufacturing output and construction activity alongside services, rose to 49.3 in November from 48.5 a month earlier, on a scale where 50.0 separates growth from expansion. Although an improvement, the reading was below the expectations of City economists.
Better than forecast
Wage growth slows despite falling unemployment
Wage growth across Britain slowed for the third month running, despite employers continuing to hire workers against a backdrop of Brexit uncertainty. The ONS said annual growth in average weekly earnings dropped to 3.2% in the three months to the end of October, when the Brexit deadline loomed – down from 3.6% a month earlier. Average weekly pay growth excluding one-off bonuses also dropped slightly to 3.5%, down from 3.6% in September. Unemployment remained at 3.8%, the lowest level since the mid-1970s, while employers continued to hire new workers in the run-up to the Brexit deadline. However, analysts said that continued hiring was dependent on the public sector, as businesses struggled amid the slowdown in the UK and global economy.
Worse than forecast
Retail sales slump ahead of Christmas
High street sales slumped in November in the weakest period for consumer spending for more than a year, as shoppers reined in their spending in the run-up to Christmas. The ONS said retail sales across Britain fell by 0.6% when compared with the previous month, with only household goods stores reporting growth. The latest figures from the high street and online suggest heavy discounting around Black Friday failed to tempt consumers to part with their cash in one of the worst periods for retailers in recent decades, pinning hopes on an uptick in December despite households facing heightened uncertainty in the run-up to the election and Brexit.
Better than forecast
Government borrowing rises
Government borrowing increased again last month as the budget deficit – the shortfall between tax income and public spending – continued to rise, with the government ramping up spending and the economy slowing. The deficit widened by about £300m in November compared with the same month a year ago to stand at £5.6bn. Although the figures paint a gradual deterioration in the strength of the public finances, the rise in borrowing was not as large as expected by City economists, who had forecast a deficit of about £6.3bn. The figures come as Sajid Javid, the chancellor, prepares to loosen the government’s purse strings after the election. Borrowing has increased over the first eight months of this financial year by more than 10% compared with the same period a year ago, to stand at about £50.9bn.
Worse than forecast
House prices fall at fastest rate since April
House prices across Britain dropped by the most in November for seven months, in a sign that Brexit and election uncertainty was weighing on the minds of buyers and sellers, a closely watched barometer of the property market showed. The gauge from the Royal Institution of Chartered Surveyors – which shows the difference between its members reporting price rises and falls – declined to -12 in November from -5 a month earlier, missing the forecasts of City economists. The UK housing market has cooled since the Brexit vote, with prices falling on an annual basis in London and some surrounding areas. Prices have continued to rise in the Midlands and the north of England.
And another thing we’ve learned this month …Whoever won the election, public service spending was set to rise
Brexit and austerity were the two major factors framing the 2019 election. According to the Institute for Fiscal Studies, day-to-day public spending on services was set to rise to above 2010 levels regardless of which party won the election, in a sign of a growing political consensus on the need to end the past decade of austerity. However, it found that day-to-day spending – excluding health – would not return to above its 2010 peak, warning that austerity was essentially still “baked in” to the new government’s plans. The country’s leading tax and spending thinktank said that neither Labour’s nor the Conservatives’ plans were credible, as they reinforced a message that spending could rise without tax-raising measures to pay for them. It warned that the Tories promising to exit the transition period at the end of 2020 with or without a trade deal with the EU could damage the public finances and the UK economy.
